It’s that time of year when students start to pack their bags and head back to college. I remember the feeling, even if only vaguely. What I don’t remember, however, is the cost of college being so prohibitive for so many. It’s become a financial epidemic.
I must admit, I was incredibly lucky to earn my degree without being saddled with debt. Today, about 50 million people owe a collective $1.5 trillion in student loans. To put this into perspective, approximately one in three between the ages of 25 and 35 are grappling with student debt. Predictably, student loan default rates are expected to rise as the problem has grown over the decades.
Student loan debt and the cost of college looks destined to be a top issue in the 2020 presidential campaign. Most Democratic contenders support some form of student debt relief, if not outright debt forgiveness. Similarly, the leading candidates are also in favor of more affordable, if not outright free, college.
Today, about 20 million people attend public colleges and universities. Very roughly, the average cost of tuition and books is around $8,000 to $10,000 per year. This brings our nation’s annual tuition bill to about $150 billion to $200 billion. After counting the tens of billions of dollars in tuition support already provided by federal grants and many state and local initiatives, the price tag of a national free college plan represents less than 5% of annual federal tax revenues.
Further, if the currently outstanding balance of $1.5 trillion in student debt were wiped away, the one-time cost would be equivalent to absorbing just 18 more months of our federal government’s deficit spending at the current rate.
However, even these estimates don’t paint an accurate financial picture. The negative economic impacts of the current student loan debt issue are meaningful and have been building over time. Statistics show that more young people now choose to delay marriage, delay starting a family and delay buying their first home. The ripple effects of the student debt crisis on economic growth have been consequential.
I suspect if one were to properly model the economic boost provided by both a student loan forgiveness plan and a free college plan, the overall cost would likely be far less than feared. According to the Census Bureau, over a full lifetime, people with a college degree earn about 1.6 times more than those with only a high school diploma. The lifetime boost in income tax receipts would lower the projected price tag of these plans, even after ignoring the clear benefits that result from a more highly-educated workforce and society.
As we listen over the coming months to politicians argue over the fiscal and political feasibility of their many plans, my hope as a voter is we rely on robust economic analysis when evaluating these proposals. And, perhaps more importantly, I hope we work to remember a time when college was far more financially accessible. Amazingly, it really wasn’t that long ago.
Jason P. Tank, CFA is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com